Greetings and welcome to the Five Point Holdings LLC Second Quarter 2021 Conference Call. Currently, all participants are in a listen-only mode. As a reminder, this call is being recorded. Today's conference call may include forward-looking statements regarding Five Point's business, financial condition, operations, cash flow, strategy, and prospects. Forward-looking statements represent Five Point's estimates on the date of this conference call and are not intended to give any assurance to the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Five Point's actual activities or results to differ materially from those activities and results anticipated and forward-looking statements. These factors include those described in today's press release and Five Point's SEC filings, including those in the risk factor section of the most recent annual report included in Form 10-K filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. And now, I would like to turn the call over to Mr. Emile Haddad, Chairman and CEO.

Thank you, Shannon. Good afternoon, everyone, and thank you for joining us today. This past quarter marks another step forward in our long-term strategy, which is founded on maintaining a solid balance sheet and low debt and ample liquidity, enabling us to monetize our irreplaceable assets. As evidence of this progress, Five Point received nearly $100 million in distributions and incentive compensation payments from the Great Park Venture in the second quarter, following the satisfaction of the priority legacy distributions. You may recall that the first $476 million in distributions out of the Great Park Venture all went to the legacy partners and any distributions to Five Point were subordinate to such priority. The distributions received this quarter mark the commencement of distributions on Five Point's 37.5% interest in the Great Park Venture. In addition, home sales of the Great Park remain very strong. Through July of this year, the net home sales at the Great Park have totaled 516 homes out of an average of 14 products, compared to 291 net sales out of an average of 20 products for the same period last year. This quarter also marked another milestone in our Valencia community. After almost two decades of entitlement, litigation, and land development, our guest builders started selling homes and the rate of sales had been impressive. Since the first home sales in mid-May, there have been 110 homes sold with an average of eight product lines open for sale over this brief time period. At this rate, the annualized home sales would be around 1,200 homes once all 18 products are selling. Valencia today is being recognized not only as the biggest supplier of homes in L.A. County but as what we believe is the largest net zero, energy mixed use plan community in the country.…

Thanks, Emile. Good afternoon. A summary of our financial results was included in the earnings release issued earlier today. I'll start with our consolidated results and then address each of our four segments and conclude with comments about our balance sheet and liquidity position. Starting with the consolidated results. The company's consolidated revenues for the second quarter totaled $8.3 million. We do not have any land sales at either Valencia or San Francisco during the quarter, and as a result, the revenue for the quarter primarily consisted of revenue generated from management services. The Great Park venture, our unconsolidated joint venture in Irvine, closed sales on land entitled for 774 home sites during the quarter, generating sales proceeds of $328.2 million. Under the equity method of accounting, our consolidated income statement for the quarter does not include the revenues and the expenses of the Great Park Venture. Instead we recognize our share of the net income of the Great Park Venture as equity and earnings from unconsolidated entities. After adjusting for our basis difference, we recognized $11.9 million in earnings from our share of the Great Park Venture's net income for the quarter. Total consolidated cost and expenses were approximately $26.5 million, including $19.2 million of selling, general, and administrative expenses for the quarter as well as $5.8 million in expenses incurred in connection with providing management services to the Great Park Venture. The net loss for the quarter was approximately $4.9 million, of which $2.6 million was allocated to the non-controlling interests, leaving $2.3 million attributable to the companies. Moving to the segment results. The Valencia segment is consolidated for accounting purposes. The Valencia segment includes our Valencia Community that is approximately 15,000 acres in Northern Los Angeles County and is designed to include approximately 12 - I'm sorry,…

Thank you. [Operator instructions] And our first question will come from Stephen Kim of Evercore ISI.

Hey, guys. Thanks very much. Good job in the quarter. Nice to see the $100 million in Great Park. I wanted to ask you about San Francisco, though, if I could. I think last quarter you had talked about the report in the Navy about - that referred to a timeline. But I wanted to see if there was some sort of update or a little bit more clarity around the timeline of deliveries there of - the delivery of land to you from the Navy and what that might mean for Five Point in, let's say, in 2023?

Hi, Stephen. Nice to hear from you again. So let me answer this way. First of all, we have lines of communication open with both the City and in Washington D.C. right now. And I can tell you there's a lot of discussion going on about accelerating the process at the highest level in government, so that I can tell you and that is actually hopefully would lead to more clarity and a timeline that is much more from that. So there's not much I can tell you more than we talked about before in terms of deliveries. The Navy had issued a schedule of when they delivered the parcels, and what they expect them to deliver the parcels. But we want to make sure that that commitment is cast on stone and that's what's happening right now. However, in terms of timing of development, as you know, Hunter's Point is the only component of the asset that is tied up in this cleanup issue. We still have Candlestick, which we have now rephrased, the whole project to Candlestick would be the first phase. And we can start on Candlestick at any point in time but we're not going to start on Candlestick until we have certainty on Hunter's Point because the two are connected together from an intelligence point of view. And in the meanwhile, we have now moderated all of our expenditures in San Francisco to limit to only contractual obligations until we have the commitments that we need to get from the Navy and from the other agencies in terms of delivery. So obviously I can give you more than that but I can tell you things are moving. If you would have asked the same question nine months ago, I wouldn't have been able to tell you that there's so much movement right now going on but there's a lot of movement going on.

Okay, well, that's encouraging. And I know that was kind of part of a broader conversation about the state of California's interest in addressing the housing shortage that you have there through densification and, frankly, that was a conversation that I think extended to Great Park as well from a theoretical perspective, I think, view in comparison to the amount of density that you - that they have in Irvine versus in Great Park. And I think you could add 5,000 to 7,000 more units theoretically, and I guess my question was is there anything tangible with respect to an effort to actually realize some increase in permitted sites? And is there an optimal point in the development of the project, as we think about the lifecycle of a big masterplan community like that, where such an increase would be either most likely or most beneficial to you?

So let me start with the last part of your question, and that is the likelihood. I would say that in light of the shift of sentiment in the state of California in favor of housing, in the light of the fact that we are seeing policy making all now being in favor of housing, which is something that in all my 37 years of being in this business, I've never seen policymakers focus on housing as much as they are right now both at the state level as well as the local level. I would tell you that the likelihood of us seeing something happen at the Great Park is good. We have a great partnership with the state of Irvine - with the City of Irvine. The City of Irvine has an incentive to comply with the state's requirement of having additional housing, as I said, the last call. The state has now allocated the shortfall of housing to each of the cities and counties. We know what the needs are and we are the best positioned to help the city here in Irvine in meeting that and we have the ability to intensify. So if you're asking me do I feel good about that happening? The answer is yes. The only thing that I can tell you concrete is that we've had a lot of discussions with the city and the city now has this - there has been an extension of the timeline that has been set by the state of California in every city requirement to deliver it to the state program. But we have a program and we think that there's going to go forward. And I feel like right now, if you're asking me do I feel that there is a probability of getting a few thousand more home sites in intensification, the straightforward answer would be yes.

Well, that's encouraging. And yes, it's certainly a right move longer-term for California. Last question for me relates to labor constraints and supply chain. I guess I should extend that that just generally extending build times and the difficulties that the builders are facing with their supply chains. Is that impacting you in any tangible way, in any meaningful way, something that we should be considering for your operations over the course of the next six months to a year?

So the shortage of labor or the supply chain is not impacting us directly. The reason why is that versus the homebuilders, who are very much focused on labor force because of the nature of their production, we tend to rely more on equipment than rely on labor. I mean as you can imagine, land development, we don't have a lot of people over there digging trenches by hand. It's a lot of equipment and, therefore, we're not directly impacted. We're indirectly impacted if the builders have a challenge in terms of labor force. That then indirectly impacts us because you know we have the partnership with the builders and we want to make sure that the cost that is coming out of that shortage doesn't translate to higher cost of building. Now we have a very, very unique position that I think is not highlighted enough in terms of how we can actually help our partners, our builders, on the labor shortage. When you look at large builders today, Steve, they - when they go to bid their project, they're bidding every project separately. And therefore, when you go to somebody who's doing any trade, there - regardless of the size of the builder, they're bidding it based on the 50 or 60 homes that they're building on. What we are now doing with our business is we're sitting down with them and saying, look, you're all guest builders and you're going to be a repeat builder. And because we have something like Valencia that's going to have a production that goes on for 10, 15 years, we have an ability together to sit down with the trades and cut a totally different deal or help the builders cut a totally different deal rather than bidding it on a one project here, another project several miles away. And there's a lot of discussion that we're having about how do we help with our builders in mitigating the cost and creating that long runway that helps them the trades commit to a market. And that's been the biggest challenge we advocate on is that because of the lack of supply, you can have that. So we're working a lot with our builders. I think we're going to be extremely helpful. But if you're asking me if the labor shortage is impacting us directly, the answer is no.

Great. No, that's very helpful. Yes, it makes a lot of sense. Thanks a lot, Emile. A real bummer about the Analyst Day but I guess you can't do much about that.

Well, what Steve, I mean we debated that and actually we made a decision this morning and I can tell you I just came back from overseas and this whole Delta is creating a lot of confusion right now. And we waited so long to have this investors meeting and we got excited that we can do it in person, and I really don't want to end-up changing it to a virtual. If we can wait a little bit and see what comes out of this variant. But if we - if you're asking me if I'd much rather delay it two or three months and have it be in person rather than have it virtual, all delay two, three months and have it in person because, as you know, seeing the communities and touching and feeling and being there is totally different than anything I can describe.

Yes, totally agree. All right. We'll be waiting. Thanks very much, Emile.

Thanks, Steve. By the way, if you're in town and you want to chat, we're always here.

Sounds good.

[Operator instructions] Our next question comes from Alan Ratner with the Zelman and Associates.

Hey, guys. Good afternoon. Thanks for taking my questions. So first one, I'd love to just get a little bit more color on the Great Park land sale, if I could. I know that each phase you guys do there is obviously a little bit different than the last but if I'm looking at this correctly, it looks like the price per acre that you guys got on this recent round of sales was roughly in line with the last big deal you did in early 2019. I'm getting to $5.7 million per acre versus $5.3 million back then lot cost. Per lot is also pretty similar. So I would have admittedly expected that number to be a bit higher just given how much both home prices and land values have run up since then but I do recognize that every phase is a bit different so maybe you can give a bit more color there about this particular phase, how it compares to prior ones and any more info you can give would be great.

Yes, Alan, nice chatting with you and thanks for the question. Look, the reason we do not focus so much on squeezing the last dollars out of a landfill is that, we have a profit participation with our builders, as you know. We participate above an 8% pre-tax 50-50 with our builders. And therefore, if the price of land could have been a couple of hundred thousand dollars more per acre, we capture it in the participation. One of the things that I think is very important for us is the change of the narrative between a land seller and land developer and builder. We are really trying very hard to send the message that this is not a transactional business. This is a relationship business. We want the builders to succeed and we want to be able to have a dependency on them as much as they have on us because at the end of the day, the shortfall in land in California is creating a lot of challenge for the builders. But for land developers also, the consolidating nature of the builders is going to create a challenge because back in 2013, '14. I used to go out with a package of 23 packages to builders. Today that universe has shrunk, so it's very important to start changing that. So we decided to not push the last dollar out on the sale, and that's a decision made by the partnership to allow the builders to execute and keep on executing properly. And those discussions that we had with the builders started a while ago. And I mean, I have no doubt at the end of the day that if there was a possibility of pushing the price up, we're going to capture it and even more in the participation anyway.

That's really helpful. I appreciate the walk-me through the thought process there and I think it makes a lot of sense. Second question, I think a quarter or two ago you mentioned there were some conversations occurring at the board level about whether it's maybe investing alongside some partners on either apartments or I think you kind of maybe temporarily ruled out single-family build for rent. But I was just curious either in Valencia or Great Park if there's been any developments there about outside of the traditional single-family lot sales for any additional opportunities going forward?

Yes, in Valencia, we have right now at least one site, potentially two, that we're looking at as an apartment site that's scheduled for sale by the end of this year. Whether the sale ends up happening to an entity that we participate in or a sale to a third party, that's something that we will decide on later in the year. But we have all of the expectation - we have expectation to be seeing more for rent products in our communities and hopefully, for us to participate in that on the vertical side as well. So at the Great Park, we will - if we go through the intensification as I was articulating before to Steve, a good part of that intensification would potentially be product that is an attached product that is for rent. Candidly, so far we have not done anything in Irvine at the Great Park that is for rent for two reasons. One, and it was very important for us to generate the cash and put ourselves in the position we're in from a liquidity point of view at the venture level, plus making the proper distributions to some of the partners, who have been in this investment for a long time. But more importantly, we came into this market and are coexisting with the Irvine company and it was very important for us to establish the proper synergy with the Irvine company. And as you know, they've been very much focused on apartments and we did not want to put ourselves in a position to compete with them and really establish a relationship that's more a neighborly relationship and respectful of the fact that this has been their market. They're, obviously, at a different phase right now and they're starting to get to a point where they're shifting away from apartments and going to office, and that gives us now the opportunity to start getting more into the apartment. So you will see us build more income-producing and hold more income-producing, whether we do it all on the balance sheet or in partnership, it's to be seen and the board will have those discussions over the coming several months.

Perfect. I appreciate all the detail. Thanks.

Of course.

And Mr. Haddad, it appears there are no further questions. I'll turn the conference back over to you for any additional or closing remarks.

Thank you very much, Shannon, and thanks for everybody to - who joined us today. We really are excited. We're a different company and I know that the reporting that we have is a little bit different than quarterly reporting, but I can tell you from the perspective of everybody who sits around the table with me here, we're extremely excited about where we are as a company and I think as the next quarter or two unfolds, there's going to be even more good news to be had. So thank you for joining us and we look forward to talking to you soon.

And that does conclude today's teleconference. Thank you all for your participation. You may now disconnect.